Company / Analytics

Week 03 in Brief

North America

• US stocks equities tumbled on Friday as investors worried about a hawkish Federal Reserve, interest rate hikes, rising inflation, and disappointing earnings from big tech firms.
• The S&P 500 and the technology-laden Nasdaq Composite had their biggest decline since March 2020.

How did the major indices perform?

• The Dow Jones Industrial Average shed 450.02 points, or 1.3%, to 34,265.37.
• The S&P 500 lost 84.79 points, or 1.9%, to close at 4,397.94. The S&P 500 notched its third straight weekly loss, according to FactSet data. Nearly all the S&P 500’s 11 sectors ended lower for the day, led by communication services, down 3.9%, and consumer discretionary off 3.1%. Consumer staples, seen as a defensive play, were the exception, finishing flat on the day.
• The Nasdaq Composite gave up 385.10 points, or 2.7%, breaching a psychological round-number level at 14,000 to close at 13,768.92.
• For the week, the Nasdaq Composite logged a 7.6% drop, which is its worst such performance since March 20, 2020. The S&P 500 booked a 5.7% decline, also for its steepest such fall since March 2020, and the Dow logged a 4.6% weekly slide for the holiday-shortened week, its worst since Oct. 30, 2020.

What drove the US market?

• Market Volatility: A bearish pall is being cast over the market and volatility has become the new normal, with investors stomaching notable intraday prices swings to conclude a withering week. Much discussion around the recent bout of weakness in equities has been centred on the rise in yields and the prospect for higher benchmark rates. Markets have been dogged by a bond market selloff and fears of Federal Reserve tightening to combat surging inflation, and that has particularly hit rate-sensitive technology stocks. Both Wednesday and Thursday saw indexes log gains early in the day only to surrender them later and on Friday losses deepened into the close, delivering another gut-punch for optimistic investors.
• Disappointing Corporate Earnings: A bumpy start to earnings season also has dented investor confidence, with a string of downbeat bank results, and gloom about Netflix, after the streaming service reported far weaker than expected subscriber growth numbers. Thus far in January, upward earnings revisions tumbled to 58.6% from 71.8% in December and 70.7% in November, versus a peak of 82.3% in August,” according to analysts at Citigroup. In particular, lowered guidance from major banks has been a key factor.
• Treasury yields: The yield on the 10-year Treasury note fell Friday to end below 1.75%, but has soared this month, from 1.5% at the start of January.
• Cryptocurrencies: Cryptocurrencies came under pressure, with bitcoin tumbling below a key support level at $40,000, dragging the sector lower while ether dropped to under $3,000 as a broad sell-off intensified Friday. The losses come a day after Russia’s central bank proposed banning the use and mining of cryptos.
• Economic Data: The Conference Board’s December leading economic index rose 0.8%, in line with forecasts and signalling steady growth even as the spread of the omicron variant of the coronavirus nibbled at economic activity.

Which US stocks were in focus Friday?

• Peloton Interactive shares climbed 11% Friday after Chief Executive John Foley pushed back against media reports claiming a production halt and layoffs that triggered a 23% plunge during Thursday’s regular trading session.
• Netflix’s stock ended down 22% on Friday, while shares of rival Walt Disney & Co. with its Disney+ and Hulu services, closed off 6.9% and streaming-device maker Roku ended down 9.1%. Analysts believe the Netflix report speaks to the broader streaming industry – they indicate that there may be little growth left in the streaming industry.

How did the European markets perform?

• European markets closed sharply lower on Friday, tracking a global pullback for risk assets.
• The pan-European Stoxx 600 dropped by 1.9%, with basic resources shedding 3.2% to lead losses as all sectors and major bourses slid into negative territory. Germany’s DAX index finished 2% lower. Meanwhile, London’s FTSE 100 closed 1.2% lower and posted a 0.7% drop for the week.
• In terms of individual share price movement, Siemens Gamesa plunged more than 13% after cutting its revenue guidance for 2022, dragging owner Siemens Energy nearly 16% lower. Barely any stocks on the European blue-chip index posted significant gains.
• In Geopolitics, US Secretary of State Antony Blinken told his Russian counterpart Friday that the Kremlin could defuse tensions and concerns about a potential invasion by removing an extraordinary deployment of troops and equipment away from Ukraine’s borders. U.S. intelligence has indicated Russia could attack within a month.
• Elsewhere, Britain’s GfK Consumer Confidence Index sank to -19 in January from -15 in December, its lowest reading since February 2021, as soaring inflation and the prospect of further interest rate hikes dampened the outlook.
• U.K. retail sales dropped by 3.7% in December from the previous month, according to the Office for National Statistics, well below the 0.6% fall expected by economists in a Reuters poll.
• In corporate news, Rio Tinto shares took a hit overnight after Serbia revoked the Anglo-Australian mining company’s lithium exploration licenses, citing environmental concerns.
• Meanwhile, Unilever has ruled out a fourth increase to its bid for GlaxoSmithKline’s consumer health-care business, effectively abandoning a tie-up that had ruffled feathers among investors.

How did Asian markets perform?

Asian markets finished lower today with shares in China leading the region. The Shanghai Composite closed down 0.9% and ended barely in positive territory for the week; China’s CSI closed off 0.9% but logged a 1.1% weekly advance, and Japan’s Nikkei 225 fell 0.9%, with a 2.1% fall on the week.

Commodities and Bonds

• Oil slightly edged lower though prices are still near their highest levels since late 2014. West Texas Intermediate crude oil fell 0.71% to $84.94 per barrel. Brent crude, oil’s international benchmark, dropped as much as 0.87% to $87.61 per barrel as strong demand for the commodity is outstripping global supply. JPMorgan said Brent could soar to $150 a barrel during the first quarter of 2022 if an ongoing conflict between Russia and Ukraine leads to a supply shock.
• Gold slipped 0.48% to $1,830.26 per ounce.

Currencies

• The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, was down 0.1% but up 0.5% on the week.
• Bitcoin plunged as much as 10% to a six-month low below $38,000 and ether dropped to under $3,000 as a broad sell-off intensified Friday.

Next Week

• The Federal Reserve will hold its first Federal Open Market Committee (FOMC) meeting for the year.
• Investors will digest earnings from major tech firms including Apple, IBM, Microsoft, J&J, Verizon, Tesla, Intel, Visa, and more & key December retail sales and consumption data